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FactSet Research Systems Inc. (FDS)

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FactSet Research Systems Inc. (FDS)

Q3 2018 Earnings Conference Call

June 26, 2018, 11:00 AM ET

Executives

Phil Snow - CEO

Maurizio Nicolelli - CFO

Rima Hyder - VP, IR

Analysts

George Tong - Goldman Sachs

Mike Reid - Cantor Fitzgerald

Glenn Greene - Oppenheimer

Hamzah Mazari - Macquarie

David Chu - Bank of America Merrill Lynch

Toni Kaplan - Morgan Stanley

Shlomo Rosenbaum - Stifel

Peter Heckmann - D.A. Davidson

Alex Kramm - UBS

Bill Warmington - Wells Fargo

Gregory Bardi - Barclays

Peter Appert - Piper Jaffray

Keith Housum - Northcoast Research

Presentation

Operator

Good morning. My name is Stephanie, and I will be your conference operator today. At this time, I would like to welcome everyone to the FactSet Third Quarter Earnings Conference Call. All lines have been placed on mute to avoid any background noise. After the speakers' remarks, there will be a question-and-answer session. [Operator Instructions]. Thank you.

Rima Hyder, Vice President of Investor Relations, you may begin your conference.

Rima Hyder

Thank you, Stephanie, and good morning, everyone. Welcome to FactSet’s third quarter 2018 earnings conference call.

Before we begin, I would like to point out that the slides we will reference during the course of this presentation can be accessed via the Webcast on the Investor Relations section of our Web site at factset.com. These slides will be posted on our Web site at the conclusion of this call. A replay of today’s call will be available via phone and on our Web site. This conference call is being transcribed in real-time by FactSet’s CallStreet Service and is being broadcast live at FactSet.com. After our prepared remarks, we will open the call to questions from investors. To be fair to everyone, please limit your question to one plus a follow-up.

Before we discuss our results, I encourage all listeners to review the legal notice on Slide 2, which explains the risks of forward-looking statements and the use of non-GAAP financial measures. Additionally, please refer to our forms 10-K and 10-Q for a discussion of risk factors that could cause actual results to differ materially from these forward-looking statements.

Our slide presentation and discussions on this call will include certain non-GAAP financial measures. For such measures, reconciliation to the most directly comparably GAAP measures are in the appendix to the presentation and in our earnings release issued this morning.

Joining me today are Phil Snow, Chief Executive Officer; and Maurizio Nicolelli, Chief Financial Officer.

And now, I'd like to turn the discussion over to Phil Snow.

Phil Snow

Thanks, Rima. Good morning to everyone and thank you for joining us on the call today. As we’re near the close of our fiscal year, we are pleased with our achievements and remain committed to executing on our growth strategy and returning value to shareholders.

In September, we’ll celebrate 40 years as a company, and while a lot has changed, the one thing that has remained constant is the strong collaboration with our clients. We have developed some of the best-in-class solutions in our industry and become an integral part of our clients’ daily investment process.

This quarter, we saw strong revenue and EPS growth, and although we saw a dip in our organic ASV growth rate, we believe we have a solid Q4 pipeline that will allow us to close our fiscal 2018 within our guidance range.

Turning to third quarter results, we grew organic revenue at 6% and ASV at over 5%. Adjusted diluted EPS increased 18% to $2.18 boosted by the U.S. tax reform and our share repurchase program.

Adjusted operating margin for the quarter was 31%, a slight decrease from last year and last quarter; however, we are very focused on achieving our medium-term goals of increasing operating margin by 100 basis points per year over the next two years.

This quarter, we took actions to streamline parts of our organization and to optimize costs, and we believe these actions in combination with our continuing efforts to integrate our acquisitions paved the path forward to margin expansion.

We increased ASV by $9 million in the last three months. The increase was primarily driven by analytics, CTS, wealth, and our annual price increase to our international clients. Our cross-selling efforts drove many of the wins this quarter.

Analytics added more than 50% of the net increase in ASV this quarter, and we highlighted our risk offering at our Investor Day as a key driver within analytics. This quarter was no different with a number of multi-asset class risk wins.

CTS had another strong quarter maintaining a high growth trajectory year-over-year and we’re really excited about the Open FactSet Marketplace which launched in April. This new platform offers both core financial and alternative datasets.

Examples are ESG, satellite, and sentiment data to address the growing demand for more integrated content across our client base. We’re seeing particularly strong interest from the quants within hedge funds as well as traditional asset managers.

Our wealth management business also performed well this quarter with workstation deployments across top tier clients displacing our main competitors. Much of our client count and workstation increase this quarter is coming from the wealth business. We’ve executed well against our strategy of broadening our wealth solutions and capturing wins with large clients.

We also saw cancellations this quarter but at a decreased rate compared to the same quarter last year. Most of the cancellations were due to firm closures and firm consolidations, a recurring theme in the industry. However, this quarter versus last year, we saw a reduction in cancellations from firm consolidations.

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